## 1usaea2024001

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### Monetary policy and outlook
- Assessment:
  - U.S. economy operating above FOMC’s mandate objectives with no high cost to current monetary settings in terms of slower growth, job losses, or reduced labor force participation.
- Recommendations:
  - Lower the policy rate only after clearer evidence that inflation is sustainably returning to the FOMC’s 2 percent goal.
  - Continue clear data-contingent communications and adjust forward guidance to ensure shifts in monetary stance are well understood.
  - Reduce the pace of run-off of the Fed’s holdings of Treasuries to provide more time to judge the appropriate long-term size of the Fed’s balance sheet.
- Projections and guidance:
  - By mid-2025, inflation is expected to return to the FOMC’s 2 percent goal, allowing the policy rate to return to a neutral setting.
  - Continue to wait to reduce the policy rate until at least late 2024; consider publishing, at each policy meeting, an internally-consistent Fed staff projection and rate path supplemented with alternate, quantified scenarios.
- Boxed analyses referenced:
  - “Possible Paths for the Federal Funds Rate”
  - “The Longer Term Size of the Fed’s Balance Sheet”
  - “Has Monetary Transmission Changed?” — finds that transmission was weaker between February and July 2022 but broadly consistent with pre-pandemic evidence thereafter.

### Macroeconomic performance and imbalances
- Key outcomes:
  - Q4/Q4 growth in 2023: 3.1 percent.
  - Core PCE inflation in 2023 was almost 1 percentage point lower than previously expected at the time of the last Article IV.
  - Assessment: economy largely returned to balance; labor market imbalances mostly resolved; operating slightly above maximum employment.
  - External position: broadly in line with level implied by medium-term fundamentals and desirable policies.
- Fiscal concern:
  - Fiscal deficit described as "much too large"; public debt-GDP ratio well above prudent levels.

### Fiscal policy findings, outlook, and recommendations
- Problem statement:
  - Ongoing increase in public debt; general government fiscal deficit and debt projected to remain well above pre-pandemic forecasts over the medium-term.
- Required adjustment:
  - Shift general government to a primary surplus of around 1 percent of GDP (an adjustment of around 4 percent of GDP relative to the current baseline).
- Policy options to achieve the adjustment over the medium-term:
  - Raising indirect taxes.
  - Progressively increasing income taxes (including for those earning less than US$400,000 per year).
  - Eliminating a range of tax expenditures.
  - Reforming entitlement programs (social security and Medicare).
- Sequencing and social priorities:
  - Do not rely solely on efficiencies in discretionary, non-defense federal spending (15 percent of total federal outlays).
  - Redeploy some fiscal savings to increase spending on programs to alleviate poverty (e.g., reinstating a more generous, fully refundable Child Tax Credit; raising the income threshold for EITC for workers without children); target these programs to lower income households if reliance on indirect taxes increases.
- Fiscal projections and measures:
  - General government gross debt (2024): 123.2 percent of GDP; projected 126.7 in 2025 and 129.6 in 2026.
  - Federal balance (% of GDP, 2024): -6.3.
  - Federal debt held by the public (% of GDP, 2024): 97.3; projected to rise to 102.1 in 2025, 104.7 in 2026, 106.3 in 2027, 108.1 in 2028, 109.5 in 2029.
  - President’s budget includes measures that would reduce the federal deficit by around 1¼ percent of GDP by 2033 (not yet enacted).
  - If all expiring provisions of the 2017 Tax Cuts and Jobs Act were renewed, this would add around 1.7 percent of GDP to the federal budget deficit.
- Fiscal reform specifics (Box 8):
  - Scale back tax expenditures: together account for around 1.4 percent of GDP per year.
  - Close carried interest provision (taxed at 23.8 percent rather than 37 percent).
  - Eliminate step up basis for capital gains on inherited assets.
  - Phase in a federal consumption tax and/or a carbon tax; a 10 percent broad-based VAT would yield around 2 percent of GDP per year.
  - Double federal excise tax on gasoline and diesel (current rates unchanged since 1993 at 18.4 cents for gasoline and 24.4 cents for diesel); doubling would yield around 0.15 percent of GDP per year.
  - Each 5 percent increase in the corporate income tax rate would yield around 0.3 percent of GDP per year (with full expensing backloading revenue gains).
  - Index social security benefits to chained CPI would save around 0.1 percent of GDP per year; subject earnings over US$250,000 to payroll taxes would yield around 0.4 percent of GDP per year.
  - Expand Medicare negotiation of drug prices could save around 0.1 percent of GDP per year.
- DSA highlights:
  - Federal debt held by the public projected to increase from about 97 percent of GDP in FY2023 to around 116 percent of GDP by 2033.
  - General government gross debt projected to rise from about 121 percent of GDP to 144 percent of GDP by 2033.
  - Effective nominal interest rate projected to stabilize at 3.3 percent by 2033 after peaking at 4.0 percent in 2024.
  - Gross financing needs (GFN): 2023 actual 55.0 percent of GDP; 2024 42.4; 2025 37.1; 2026 34.6; 2027 onward around low- to mid-30s percent of GDP.
  - Target primary surplus for debt decline: ~1 percent of GDP (general government); 1.4 percent of GDP for the federal government.

### Drivers of post-pandemic demand strength
- Pandemic-era fiscal support:
  - Cumulative increase in federal spending in 2020–21: around 19 percent of GDP.
  - Federal transfers plus foregone consumption and debt rescheduling added an estimated 10 percent of GDP to household savings by end-2021.
  - Around 3½ percent of GDP in federal loans provided through the Payroll Protection Program were subsequently forgiven.
- Household wealth and consumption:
  - Home prices: an almost 50 percent increase in the average house price since end-2019.
  - Real median net wealth grew by 34 percent since 2019 (2019Q3 to 2022Q3).
  - Box 1 findings: higher housing wealth accounted for more than half of the increase in consumption relative to end-2019; gains in real wages explained around one-quarter of the increase; pandemic savings bolstered consumption during 2022 but waned in 2023.
- Terms of trade:
  - Material improvement in U.S. terms of trade since end-2019 supported aggregate demand in part because the U.S. was a net exporter of natural gas, crude oil, and petroleum products.

### Distributional outcomes and vulnerabilities
- Poverty and households:
  - Poverty increased by 4.6 percentage points in 2022; child poverty rate more than doubled (as measured by the supplementary poverty measure described).
  - Worsening housing affordability increased homelessness to the highest level since data began in 2007.
  - Upswing in delinquencies on revolving credit signals growing strain among low-income households.

### Transmission of higher interest rates and financial buffers
- Mortgages and household balance sheets:
  - Around one half of mortgages reset at lower rates during 2020–21 via refinancing or home sales.
  - By end-2021, over 95 percent of mortgages were at low, fixed rates.
  - Households extracted around US$0.5 trillion in home equity during 2020–21.
  - Households increased holdings of bank deposits and money market funds by almost 3 percent of GDP.
  - Nonfinancial corporates hold 2.3 percent of GDP more in bank deposits and money market funds than at end-2019.
- Net interest payments:
  - Corporate net interest payments halved (as a share of GDP) even as the federal funds rate moved higher, due to low-cost fixed liabilities and floating rate assets.
  - Households saw only a small increase in net interest payments, with rising obligations on auto loans and revolving credit.
- Implication:
  - Monetary policy transmission may have been somewhat less impactful than in past tightening cycles due to these balance-sheet dynamics.

### Financial oversight and stability recommendations
- Progress and remaining actions:
  - Implement final components of the Basel III agreement.
  - Apply similar regulatory requirements (including supervisory stress tests) to all banks with US$100 billion or more in assets.
  - Further strengthen supervisory oversight and practices; re-examine coverage of deposit insurance.
  - Recalibrate bank liquidity requirements and liquidity stress tests to better account for fast-moving deposit outflows.
  - Address vulnerabilities in nonbank mortgage companies and possible migration of assets to collective investment funds.
- Banking vulnerabilities and CRE exposure:
  - CRE loans total around US$6 trillion; ~one fifth is office exposure.
  - Around one half of office CRE exposure is believed to be held on bank balance sheets.
  - Stress-test results:
    - Losses on CRE assets could deplete capital of some highly exposed banks, but these are very small banks.
    - 16 banks would exhaust their tier 1 capital buffer; these banks represent 0.1 percent of system assets.
    - Under an extreme scenario (full outflow of uninsured deposits and liquidation of Treasury holdings), 558 banks (10 percent of system assets) would deplete their tier 1 capital buffer, including a small number of banks with over US$100 billion in assets.
  - Stress test assumptions (Box 10): 4,641 banks, representing 99.8 percent of total bank assets; office loans constitute 40 percent of total CRE loans; 30 percent default rate and 50 percent recovery rate on such loans.
- Money market funds and collective investment funds:
  - During 2023, US$1.1 trillion moved into money market funds.
  - Money market fund assets are "almost 60 percent larger today than prior to the pandemic."
  - Institutional migration likely from prime funds to government-only funds (government-only funds already "over 80 percent of the total").
  - Collective investment funds estimated to have US$7 trillion in assets and are exempt from SEC oversight, creating a potential regulatory gap.

### Treasury market functioning risks and reforms
- Ongoing steps taken:
  - Treasury buyback program of off-the-run securities.
  - Expanded required central clearing for certain repo/reverse repo trades and enhanced FICC margin collection.
  - Require firms acting like dealers to register and comply with dealer-like requirements; require certain broker-dealers to join FINRA and report Treasury transactions.
  - Proposed ongoing data collection of non-centrally cleared bilateral repo transactions by OFR.
  - FINRA to publish daily aggregate data on Treasury transactions and finer transaction time data.
  - Money market funds required to report additional information on shareholders holding 5 percent or more; increased disclosures for large liquidity fund advisers managing at least US$1 billion.

### Trade policy assessment and recommendations
- Risks identified:
  - Intensifying trade restrictions, tariffs, and domestic-content provisions are a growing downside risk to U.S. and global growth and risk spurring retaliatory actions.
  - Between 2009–22, the U.S. put in place over 3,000 subsidy measures, covering 63 percent of U.S. exports.
  - Introduction of subsidies in China, the EU, or the U.S. has, on average, a 74 percent probability of being reciprocated in the same product group.
- Empirical findings on tariffs (Box 11):
  - Tariffs reconfigured supply chains, raised import prices, and had modest negative effects on the U.S. economy.
  - U.S. firms and importers bore the brunt through a one-for-one increase in import prices; pass-through to retail prices was small and costs were absorbed in corporate margins.
  - Estimated effects:
    - Negative effect on U.S. welfare equivalent to 0.1 percent of GDP (Fajgelbaum and Khandelwal, 2022).
    - Reversing the 2018–19 tariffs would raise output by 0.4 percent after three years (Boer and Rieth, 2024).
    - A 25 percent uniform tariff on Chinese imports, reciprocated by China, would reduce U.S. output by 0.2 percent (Caceres et al., 2019).
- Recommendations:
  - Remove tariffs, nontariff barriers, and domestic-content provisions that discriminate between domestic and foreign commercial interests.
  - Actively engage with major trading partners to address unfair trade practices, supply-chain fragilities, and national security concerns via multilateral fora and WTO reform.
  - Bolster competitiveness through investments in worker training, apprenticeships, and infrastructure.
  - Confine industrial policy to narrowly defined objectives; minimize trade and investment distortions and respect international obligations.

### External sector, NIIP, and current account
- External position assessment:
  - 2023 CA deficit: 3.0 percent of GDP (versus 3.8 percent of GDP in 2022).
  - IMF staff 2023 midpoint CA gap: –0.7 percent of GDP (EBA Norm: –1.9; Cycl. Adj. CA: –2.6).
  - Medium-term CA projection: decline to about 2¼ percent of GDP with fiscal consolidation and normalization of private saving.
- NIIP and asset/liability snapshot (2023):
  - NIIP at end-2023: –70.7 percent of GDP.
  - Gross Assets: 123.6 percent of GDP.
  - Debt Assets: 37.9 percent of GDP.
  - Gross Liabilities: 194.3 percent of GDP.
  - Debt Liabilities: 87.2 percent of GDP.
- REER and valuation:
  - REER appreciation in 2022: 8.3 percent.
  - REER depreciation in 2023: 0.5 percent (yearly averages).
  - As of April 2024: REER about 2 percent above the 2023 average.
  - IMF staff 2023 midpoint REER overvaluation assessed to be 5.8 percent (range 11.6 to 0 percent).

### Risk assessment and outlook (selected projections and FSIs)
- Key projections (selected):
  - Real GDP (2024): 2.6 percent.
  - Real GDP (q4/q4, 2024): 2.0 percent.
  - Unemployment rate (2024): 3.6.
  - Output gap (2024): 0.6 percent of potential GDP.
  - CPI inflation (q4/q4, 2024): 2.8.
  - Core PCE Inflation (q4/q4, 2024): 2.5.
  - Current account balance (% of GDP, 2024): -2.9.
  - Current account balance (US$ billions, 2024): -829.
  - Net International Investment Position (2024): -71.6 percent of GDP.
- Financial soundness indicators (2023):
  - Regulatory capital to risk-weighted assets: 15.90 percent.
  - Tier 1 capital to risk-weighted assets: 14.88 percent.
  - Nonperforming loans to total gross loans: 0.85 percent.
  - Return on assets: 1.31 percent.
  - Return on equity: 11.39 percent.
  - Customer deposits to total (noninterbank) loans: 138.07 percent.
  - Residential real estate prices (y/y, 2023): 2.64 percent.
  - Commercial real estate prices (y/y, 2023): -7.53 percent.
  - Household debt to GDP (2023): 76.2 percent.
- Major risks, likelihoods, impacts, and policy responses (selected):
  - Intensification of regional conflicts — Likelihood: High; Expected impact: Medium.
  - Commodity price volatility — Likelihood: High; Expected impact: Medium.
  - Deepening geoeconomic fragmentation — Likelihood: High; Expected impact: Medium.
  - Abrupt global slowdown — Likelihood: Medium; Expected impact: Medium.
  - Cyberthreats — Likelihood: Medium; Expected impact: High.
  - Extreme climate events — Likelihood: Medium; Expected impact: Medium.
  - Premature loosening of monetary policy — Likelihood: Medium; Expected impact: High.
  - Tight-for-longer monetary policy — Likelihood: Medium; Expected impact: High.
  - Systemic financial instability (including deposit outflows in regional banks) — Likelihood: Medium; Expected impact: High.

### Data, governance, and institutional notes
- Data adequacy: overall data quality assessed as adequate for Fund surveillance; areas for improvement include reconciling saving-investment balance in national accounts with the current account balance in the BOP and advancing financial sector statistics (e.g., banks’ holdings of CLOs, CRE loan holdings by property type).
- Fund relations and Article IV timing:
  - Consultation concluded on June 27, 2024; staff report published as IMF Country Report No. [24/232].
  - 2024 Article IV discussions: May 28–June 13, 2024.
  - Next Article IV consultation recommended on the standard 12-month cycle.

*Source: IMF staff report (United States Article IV consultation), July 1, 2024.*

### 2024. With the economy humming along at an impressive rate the U.S. has not paid a

### 1usaea2024001 - 2024. With the economy humming along at an impressive rate the U.S. has not paid a

### Monetary policy and outlook
- The U.S. economy has been operating above the FOMC’s mandate objectives with no high cost to current monetary policy settings in terms of slower growth, job losses, or reduced labor force participation.
- Recommendation: Lower the policy rate only after clearer evidence that inflation is sustainably returning to the FOMC’s 2 percent goal.
- Communications and guidance: Continue to clearly communicate the FOMC’s interpretation of incoming data and adjust forward guidance to ensure shifts in monetary stance are well understood and smoothly absorbed.
- Balance sheet policy: Reducing the pace of run-off of the Fed’s holdings of Treasuries will provide more time to judge the appropriate long-term size of the Fed’s balance sheet.
- Projection: By mid-2025, inflation is expected to return to the FOMC’s 2 percent goal, allowing the policy rate to return to a neutral setting.
- Boxed analysis: “Possible Paths for the Federal Funds Rate” and “The Longer Term Size of the Fed’s Balance Sheet” are presented as analytical complements to the above guidance.

### Macroeconomic performance and imbalances
- Q4/Q4 growth in 2023 was 3.1 percent.
- Core PCE inflation in 2023 was almost 1 percentage point lower than previously expected at the time of the last Article IV.
- Assessment: The U.S. economy has largely returned to balance; labor market imbalances mostly resolved and the economy appears to be operating slightly above maximum employment.
- External position: Assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Fiscal concern: The fiscal deficit is much too large and the public debt-GDP ratio is well above prudent levels.

### Fiscal policy findings and recommendations
- Problem statement: There is a pressing need to reverse the ongoing increase in public debt; the general government fiscal deficit and debt are projected to remain well above pre-pandemic forecasts over the medium-term.
- Required adjustment: To put debt-GDP on a clear downward trajectory, a frontloaded fiscal adjustment is needed that shifts the general government to a primary surplus of around 1 percent of GDP (an adjustment of around 4 percent of GDP relative to the current baseline).
- Policy options to achieve the adjustment over the medium-term:
  - Raising indirect taxes.
  - Progressively increasing income taxes (including for those earning less than US$400,000 per year).
  - Eliminating a range of tax expenditures.
  - Reforming entitlement programs.
- Social priority: Some fiscal savings should be deployed to increase spending on programs to alleviate poverty.

### Drivers of post-pandemic demand strength
- Pandemic-era fiscal support:
  - The cumulative increase in federal spending in 2020–21 was around 19 percent of GDP.
  - Federal transfers plus foregone consumption and debt rescheduling added an estimated 10 percent of GDP to household savings by end-2021.
  - Around 3½ percent of GDP in federal loans provided through the Payroll Protection Program were subsequently forgiven.
- Household wealth and consumption:
  - Home prices: An almost 50 percent increase in the average house price since end-2019.
  - Real median net wealth in the U.S. has grown by 34 percent since 2019 (calculated from 2019Q3 to 2022Q3).
  - Wealth gains were broad-based across the income distribution, though larger for the highest income households.
  - Box 1 quantitative findings:
    - Higher housing wealth accounted for more than half of the increase in consumption relative to end-2019 levels.
    - Gains in real wages explained around one-quarter of the increase.
    - Pandemic savings bolstered consumption during 2022 but the impact waned during 2023.
- Terms of trade: A material improvement in the U.S. terms of trade since end-2019 supported aggregate demand, in part because the U.S. was a net exporter of natural gas, crude oil, and petroleum products.

### Distributional outcomes and vulnerabilities
- Poverty: Poverty increased by 4.6 percentage points in 2022 and the child poverty rate more than doubled (as measured by the supplementary poverty measure described).
- Housing and homelessness: Worsening housing affordability has increased homelessness to the highest level since data began to be compiled in 2007.
- Financial distress: An upswing in delinquencies on revolving credit signals growing strain among low-income households.

### Transmission of higher interest rates and financial buffers
- Mortgages and debt structure:
  - Around one half of mortgages reset at lower rates during 2020–21 through refinancing or home sales.
  - By end-2021, over 95 percent of mortgages were at low, fixed rates.
- Households and corporates increased holdings of short-duration financial assets:
  - Households extracted around US$0.5 trillion in home equity during 2020–21.
  - Households increased holdings of bank deposits and money market funds by almost 3 percent of GDP.
  - Nonfinancial corporates hold 2.3 percent of GDP more in bank deposits and money market funds than at end-2019.
- Net interest payments:
  - For nonfinancial corporates, the combination of low-cost fixed liabilities and floating rate assets led to a substantial decline in net interest payments; corporate net interest payments actually halved (as a share of GDP) even as the federal funds rate moved higher.
  - Households saw only a small increase in net interest payments, with rising obligations on auto loans and revolving credit.
- Effect on monetary transmission: These dynamics suggest monetary policy transmission has potentially been somewhat less impactful than in past tightening cycles.

### Financial oversight and stability recommendations
- Progress: Financial stability risks have diminished since the 2023 Article IV consultation and some reforms have been implemented (e.g., steps to strengthen the Treasury market and insulate money market funds).
- Remaining gaps and recommended actions:
  - Fully implement the final components of the Basel III agreement.
  - Apply similar regulatory requirements to all banks with US$100 billion or more in assets (including supervisory stress tests).
  - Further strengthen supervisory oversight and practices.
  - Re-examine the coverage of deposit insurance.
  - Recalibrate bank liquidity requirements and liquidity stress tests to better account for fast-moving deposit outflows.
  - Address vulnerabilities in nonbank mortgage companies and possible migration of assets to collective investment funds.
- Boxed analysis: “Recent Reforms to the Treasury Market” and “Potential Bank Losses from Commercial Real Estate” explore related risks.

### Trade policy assessment
- Risk: Intensifying trade restrictions and preferential domestic treatments are a growing downside risk to U.S. and global growth.
- Recommendation: Actively engage with major trading partners to address core issues (unfair trade practices, supply chain fragilities, national security) rather than imposing tariffs, nontariff barriers, or domestic content provisions.
- Rationale: Tariffs and similar measures distort trade and investment flows, risk weakening the multilateral trading system, undermine global supply chains, spur retaliatory actions, and are ultimately bad for U.S. growth, productivity, and labor market outcomes. Evidence suggests their costs are largely borne by U.S. firms and consumers.
- Alternative: Bolster competitiveness through investments in worker training, apprenticeships, and infrastructure.

*Source: IMF staff report (United States Article IV consultation), July 1, 2024.*

### Box 3. Has Monetary Transmission Changed?

### Box 3. Has Monetary Transmission Changed?

### Overview and question
- In March 2022, the Federal Reserve began the fastest and largest series of interest rate hikes since the early 1980s.
- Despite a larger-than-expected increase in the policy rate, output and employment both outperformed early expectations.
- The core question: was the federal funds rate less impactful in dampening demand post-pandemic, or did other countervailing shocks offset monetary effects?

### Methodology
- A model was estimated on pre-pandemic data to determine how surprise changes in interest rates (triangulated by estimating from equity and bond market pricing in short windows around Federal Reserve meetings and speeches) impact the economy.
- The dynamic structure estimated pre-pandemic was used to back out the monetary policy shocks that would have been consistent with post-pandemic activity and inflation outturns (assuming no change in monetary transmission).
- The implied shocks (from assuming unchanged transmission) were compared with actual measured shocks as a test of whether transmission changed.
- The approach explicitly accounts for the possibility that non-monetary shocks are simultaneously affecting outturns (even though those shocks are not directly observable).

### Key findings
- Between February and July 2022 (around the time the Federal Reserve started to shift its approach on monetary policy), the impact of rate increases on the macro-economy appeared to be considerably weaker than it had been pre-pandemic.
  - This implies larger interest rate increases would have been necessary during that period to generate similar downward pressure on activity and inflation as would have occurred in the pre-pandemic period.
  - The lower impact of higher policy rates can partly explain why demand was more robust in the pandemic recovery despite the abrupt monetary tightening that took place.
- Evidence after the initial phase of tightening suggests transmission of policy was broadly consistent with the pre-pandemic period.
- Reference: P. Barrett and J. Platzer (2024) “Has the Transmission of U.S. Monetary Policy Changed Since 2022?”, IMF Working Paper, 2024/129.

### Implications for outlook and monetary policy (connected findings from surrounding text)
- The analysis of transmission is one input into broader policy guidance:
  - Continued robust demand, ongoing supply side gains, and carryover from 2023H2 are expected to result in annualized growth of 2.6 percent in 2024.
  - Unemployment is expected to gradually rise to around 4¼ percent by mid-2025.
  - PCE inflation fell from its peak of 7.1 percent in mid-2022 to 2.7 percent in April 2024.
  - Headline and core PCE inflation are expected to fall to the Federal Reserve’s 2 percent medium-term target by mid-2025, albeit with important upside risks.
- Policy recommendation informed by upside risks to inflation and the transmission assessment:
  - The Fed should wait to reduce its policy rate until at least late 2024.
  - Risk management considerations argue for delaying the start of the loosening cycle until the data shows more clarity that inflation is firmly returning to the FOMC’s 2 percent goal.
  - Communications: continue clear data-contingent guidance; consider publishing, at each policy meeting, an internally-consistent economic projection and rate path produced by Fed staff (supplemented with a few alternate, quantified scenarios) to better convey the range of views and distribution of risks.

*Source: Box 3. Has Monetary Transmission Changed?, from the provided IMF content unit.*

### 18.       The general government fiscal deficit and debt, as a share of GDP, are both projected

### The general government fiscal deficit and debt, as a share of GDP, are both projected

### Fiscal outlook and recent developments
- After the unprecedented fiscal response to COVID-19, the budget deficit fell significantly in 2022 as pandemic-related fiscal measures unwound, but the deficit rose again in 2023.
- Drivers of the 2023 deficit increase: lower non-withheld income tax revenues, higher interest costs, new outlays on student loan relief (the net present value of which is booked in the current fiscal year), and increases in mandatory spending on income security.
- The combined effect was a 3.5 percent of GDP widening of the general government deficit in 2023.
- Despite legislative efforts (e.g., the Fiscal Responsibility Act of 2023), the federal deficit is expected to rise by around ½ percent of GDP in FY2024, resulting in a 0.2 percent of GDP increase in the general government deficit between 2023 and 2024.
- Under current policies, the general government debt-GDP ratio is expected to exceed 140 percent of GDP by 2032 and the general government deficit is expected to remain around 2½ percent of GDP above the levels forecast at the time of the 2019 Article IV consultation.

### Risks and external effects
- The steady upward path for the public debt-GDP ratio represents a growing risk to the U.S. and global economy, potentially feeding into higher fiscal financing costs and a growing risk to the smooth rollover of maturing obligations.
- Based on standard IMF tools, the risk of sovereign stress in the U.S. is low, public debt is sustainable, and the government has some fiscal space (Annex II).
- The large fiscal deficit is also putting upward pressure on the current account deficit: the 2023 current account was 0.7 percent of GDP larger than the norm (Annex III), with almost all of the difference accounted for by a larger-than-desirable fiscal deficit.
- The fiscal dissaving impact on the external position in 2023 is partially offset by an increase in corporate net saving arising from higher after-tax profits and a modest decline in corporate investment as a share of GDP.

### Required adjustment and medium-term target
- Putting debt-GDP on a clear downward trajectory will require a shift to a general government primary surplus of around 1 percent of GDP.
- This implies an adjustment of around 4 percent of GDP relative to the current baseline.
- The president’s budget includes measures that would reduce the federal deficit by around 1¼ percent of GDP by 2033, but these policies have not been enacted by Congress.
- Making the case for substantive fiscal adjustment is difficult given weak societal support and complex political economy dynamics.

### Policy recommendations (fiscal instruments and sequencing)
- Burden of adjustment should not rely solely on efficiencies in discretionary, non-defense federal spending (which makes up only 15 percent of total federal outlays). Instead, policy changes should include:
  - Progressive increases in the federal tax burden.
  - Rebalancing of entitlement programs, notably social security and Medicare.
  - Measures in the president’s budget are referenced as options (see Box 8 for specific measures).
- Some fiscal savings should be redeployed to increase spending on programs to alleviate poverty, explicitly:
  - Reinstating a more generous, fully refundable Child Tax Credit.
  - Raising the income threshold for eligibility for the EITC for workers without children.
  - Target these programs more carefully to lower income households, particularly if reliance on indirect taxes increases.
- Institutional reforms to reduce systemic risks from debt limit standoffs and funding lapses:
  - Ensure that once appropriations are approved, the corresponding space is added automatically to the debt ceiling.
  - Provide automatic funding of the federal government at some fraction of previous year’s funding if appropriations lapse until a full-year appropriations bill is signed.

### Fiscal reform opportunities and specifics (Box 8)
- Scale back poorly targeted tax expenditures (examples listed) that together account for around 1.4 percent of GDP per year.
- Close the “carried interest” provision that taxes certain income at 23.8 percent rather than at the 37 percent top marginal rate.
- Eliminate “step up basis” for capital gains on inherited assets.
- Phase in a federal consumption tax and/or a carbon tax; a 10 percent, broad-based VAT would yield around 2 percent of GDP per year (but is generally regressive and would require social assistance cushioning).
- Raise the federal excise tax on gasoline and diesel (current rates unchanged since 1993 at 18.4 cents for gasoline and 24.4 cents for diesel); doubling both would yield around 0.15 percent of GDP per year.
- Raise the corporate tax rate and move toward a cashflow tax; each 5 percent increase in the corporate income tax rate would yield around 0.3 percent of GDP per year (with full expensing backloading revenue gains).
- Reduce imbalances in the social security system: indexing benefits to chained CPI would save around 0.1 percent of GDP per year; subjecting earnings greater than US$250,000 to social security payroll taxes would yield around 0.4 percent of GDP per year.
- Contain health care costs via technological efficiency, greater beneficiary cost sharing, and payment reform; expanding Medicare negotiation of drug prices could save around 0.1 percent of GDP per year.
- Legislating the globally coordinated agreement on a minimum corporate tax to counter profit shifting and base erosion.

### Administration actions and fiscal prospects
- Even with enactment of the CHIPS Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act, the administration has lowered the federal deficit by over US$1 trillion and enacted revenue-raising policies including IRS modernization, a minimum tax on the profits of the largest corporations, and a surcharge on stock buybacks.
- The President’s 2025 Budget proposes measures to reduce the federal deficit by an average of around 1 percent of GDP over the next decade, including raising the corporate tax rate and increasing the tax burden for those earning over US$400,000 per year; it also argues to make permanent an expanded refundable Child Tax Credit and a more generous EITC for workers without dependents.
- Staff’s fiscal forecast assumes that expiring provisions of the 2017 Tax Cuts and Jobs Act will sunset as scheduled; if all expiring provisions were renewed, this would add around 1.7 percent of GDP to the federal budget deficit.

### Distributional and poverty considerations
- Pandemic-era interventions significantly lowered poverty to 7.8 percent (5.2 percent for children); with expiration of support measures in 2022, poverty rose back to pre-pandemic levels.
- Recommendations emphasize using some fiscal savings to strengthen targeted anti-poverty programs, especially if indirect taxation rises.

### Macroeconomic multipliers and spillovers
- The proposed medium-term adjustment would be expected to have a relatively small effect on U.S. growth if much adjustment occurs through higher indirect taxation combined with improved social safety nets and gradual entitlement changes.
- Any drag on growth would be partially offset by somewhat lower interest rates (from both a lower path for the policy rate and smaller term premia) and a somewhat weaker dollar, producing positive outward spillovers, particularly for countries with sizable dollar financing needs.

### Broader assessment of post-pandemic balance
- Labor market: supply-demand imbalances have mostly dissipated; 2.8 million jobs were created over the past 12 months; hiring, quits, layoffs, unemployment, U6, and job-to-job transitions broadly returned to 2018-19 levels; nominal wage growth remains above levels consistent with 2 percent inflation, but strong productivity kept unit labor costs lower than in 2018-19.
- Consumption: share of consumption accounted for by goods remains above pre-pandemic levels but swing back to services appears largely complete after accounting for prior trends.
- External: current account at 3 percent of GDP in 2023 is somewhat above the norm but largely reflects the larger-than-desirable fiscal position; the U.S. dollar is around 10 percent above its pre-pandemic levels, largely explained by cyclical strength and improved terms of trade as the U.S. became a net energy exporter.
- Corporate margins: average profit margins rose from around 13-14 percent pre-pandemic to over 20 percent by end-2023; around 2 percentage points of this higher margin can be accounted for by gains in corporate net interest income.
- Housing: prices are now around 50 percent higher than prior to the pandemic; the median household would need to spend over 40 percent of their monthly income to cover costs of owning the median home; turnover and inventory are at low levels.
- Public finances: the general government deficit is expected over the medium-term to remain around 2½ percent of GDP higher than prior to the pandemic (split evenly between higher interest payments and a looser primary balance); public debt-GDP is well above levels expected a few years ago—this is a visible and lasting imbalance that increases vulnerability if financing costs rise.

*Source: IMF staff analysis as presented in the chapter text.*

### 31.      All in all, the evidence suggests the U.S. economy has largely returned to balance.

### 1usaea2024001 - 31.      All in all, the evidence suggests the U.S. economy has largely returned to balance.

### Overall assessment
- Many pandemic-catalyzed imbalances have unwound, notably with respect to labor markets, the composition of consumption, and the external position.
- Inflation is expected to soon return to target, allowing the monetary stance to normalize.
- Significant uncertainty remains around corporate profitability and the relative price of housing.
- The fiscal deficit "remains much too large" and will require decisive policy efforts to address.
- Addressing the fiscal imbalance through:
  - higher indirect taxes,
  - increased taxation of high-income individuals,
  - eliminating poorly targeted tax expenditures, and
  - making gradual parametric changes to entitlement programs
  should have relatively small multiplier effects but would:
  - allow for lower public debt-GDP,
  - produce a smaller CA deficit,
  - put downward pressure on market interest rates,
  - lessen macroeconomic vulnerabilities, and
  - create positive outward spillovers (particularly to those with sizable dollar financing needs).

### Authorities’ views and policy measures
- Authorities judge that significant progress has been made returning the economy to balance after pandemic and Russia–Ukraine shocks.
- Indicators show labor supply and demand have come into better balance over the past year, supply chain disruptions largely resolved, and inflation on a downward path toward normal levels.
- The child tax credit in the administration’s budget proposal, if enacted, would be "an impactful tool to reduce poverty."
- Supply-side reforms legislated in the Inflation Reduction Act, Infrastructure, Investment, and Jobs Act, and CHIPS Act are viewed as helping to relieve bottlenecks, increase labor productivity, and address climate challenges.

### Near-term risks to activity and employment
- Risks are characterized as balanced:
  - Upside: consumption and investment could exceed expectations due to a healthy labor market, rising real incomes, wealth gains, and abundant relatively low-cost financing; supply-side gains from higher productivity and inflow of foreign labor could persist.
  - Downside: a more complex global geopolitical environment, a slower path of disinflation with a higher path for interest rates, election-related policy shifts, financial stability concerns, and rising trade and subsidy distortions.

### Political risks
- Upcoming national elections create significant uncertainties about the economic policy mix for 2025 and beyond.
- Potential policy changes in taxation, spending, financial and environmental regulation, immigration, and trade could significantly affect growth, inflation, interest rates, and debt dynamics.
- Example spillover: a stronger dollar and more trade restrictions would likely hit countries with large current account deficits, reliance on dollar financing, or exports dependent on the U.S. market.

### Financial stability risks — summary
- Financial stability risks have diminished since the 2023 Article IV, but important pockets of vulnerability remain.
- Bank failures in 2023 (SVB and Signature) risks have receded; deposit outflows into money market funds were smoothly absorbed.
- A process is underway to work out worsening credit quality of office commercial real estate (CRE) debt.
- Continuing need to increase resilience of nonbank mortgage companies given their critical role in servicing a sizable share of U.S. mortgages.
- A range of FSAP recommendations remain to be implemented.

### Treasury market functioning risks and reforms
- Potential shortcomings in Treasury market functioning under stress continue to represent a systemic risk given the market’s global status.
- Authorities formed an interagency working group and have taken steps including:
  - a Treasury buyback program of off-the-run securities,
  - increased oversight over key market participants,
  - better data collection, and
  - rules to expand central counterparty clearing for a range of secondary markets.
- Box 9 — Recent reforms to the Treasury market (selected measures):
  - A buyback program for off-the-run Treasuries to bolster secondary market liquidity and improve cash management.
  - Expanded required central clearing (after phase-in) to include repo/reverse repo trades collateralized by Treasury securities with FICC members and certain cash trades, and FICC to collect margin separately for members and customers.
  - Firms acting like dealers (e.g., principal trading firms, certain private funds) must register with the SEC, join a self-regulatory organization, and comply with dealer-like requirements.
  - Broker-dealers previously exempt from FINRA membership must join FINRA and report Treasury transactions to FINRA’s Trade Reporting and Compliance Engine.
  - Proposed ongoing data collection of non-centrally cleared bilateral repo transactions by the Office of Financial Research.
  - FINRA publishing daily aggregate data on Treasury transactions and trade-by-trade data for on-the-run securities; collecting transaction time at the finest increment allowed.
  - Money market funds required to report additional information about shareholders holding 5 percent or more of shares outstanding; increased disclosures for large liquidity fund advisers managing at least US$1 billion in liquidity and money market fund assets.

### Banking vulnerabilities and supervisory recommendations
- Vulnerabilities revealed in 2023—failings in bank supervision and risks from the 2018 regulatory "tailoring"—have not yet been fully addressed.
- Public comments were requested on proposed changes to bank capital requirements based on Basel III standards and on a requirement for large, non-GSIB banks to maintain a minimum amount of long-term debt.
- Internal regulatory processes are being updated, but concrete actions to decisively remedy known vulnerabilities have been lacking:
  - Options for deposit insurance reform have not been acted upon.
  - No changes yet to bank capital or liquidity requirements.
  - Medium-sized banks remain subject to the Fed’s supervisory stress test only every other year.
- Suggested considerations:
  - fully implement the final components of the Basel III agreement;
  - apply similar regulatory requirements (including annual supervisory stress tests) to all banks with US$100 billion or more in assets;
  - further strengthen supervisory oversight and practices;
  - re-examine the coverage of deposit insurance; and
  - recalibrate liquidity requirements and liquidity stress tests to better account for fast-moving deposit outflows and potential losses when long-duration assets are liquidated.
- Specific long-term debt proposal: require certain banks to have long-term debt outstanding that exceeds 6 percent of risk-weighted assets, 2.5 percent of the supplementary leverage ratio, or 2.5 percent of total consolidated assets (whichever is largest).

### Commercial Real Estate (CRE) and bank exposure
- CRE loans total around US$6 trillion, of which around one fifth represents exposure to office space.
- Around one half of office CRE exposure is believed to be held on bank balance sheets.
- Structural changes in work practices have lowered office occupancy and maturing leases are resetting at lower prices, while costs of new financing for office properties have risen steeply—deteriorating credit quality and prompting debt restructurings.
- Stress tests indicate:
  - Losses on CRE assets could deplete the capital of some highly exposed banks, but these are very small banks.
  - 16 banks would exhaust their tier 1 capital buffer; these banks represent 0.1 percent of system assets.
  - Assuming CRE losses trigger a full outflow of the bank’s uninsured deposit and subsequent liquidation of Treasury holdings, 558 banks (10 percent of system assets) would deplete their tier 1 capital buffer, including a small number of banks with over US$100 billion in assets.
- The combination of credit losses and a sizable share of uninsured deposits could undermine bank capitalization under an extreme stress scenario.

Box 10 — stress test assumptions and scope:
- Stress test conducted on 4,641 banks based on 2023Q4 Call Reports, representing 99.8 percent of total bank assets.
- Assumptions: office loans constitute 40 percent of total CRE loans; 30 percent default rate and 50 percent recovery rate on such loans (considerably worse than following the 2008–09 recession).
- Minimum tier 1 requirement is 6 percent (i.e., does not include the GSIB surcharge).

### Money market funds and collective investment funds
- Money market funds expanded rapidly; during 2023 alone, US$1.1 trillion moved into money market funds, with most of this increase appearing to come from household savings.
- Money market fund assets are "almost 60 percent larger today than prior to the pandemic."
- SEC responses to lessen vulnerabilities:
  - increased minimum liquidity requirements for money market funds,
  - required funds to impose liquidity fees if liquid assets become sufficiently eroded,
  - removed the ability to temporarily suspend redemptions (gates or fees).
- These changes are likely to lead to migration away from institutional prime funds to government-only funds (which already make up "over 80 percent of the total").
- Collective investment funds—estimated to have US$7 trillion in assets, largely in retirement accounts—are exempt from SEC oversight and not subject to these rule changes, creating a potential regulatory gap that may incentivize migration of resources to these funds as standards tighten for regulated funds.

### Financial Stability Oversight Council (FSOC) actions
- FSOC has:
  - established a climate-related financial risk committee to develop a framework and risk indicators for banks, insurers, and financial markets;
  - put in place a risk-monitoring system for potential financial stability risks from hedge fund activities;
  - developed a new analytical framework to formalize assessment and response to financial risks;
  - provided updated guidance on procedures for designating nonbanks to be subject to Federal Reserve supervision;
  - undertaken actions to address data gaps, including non-centrally cleared bilateral repo transactions and increased SEC disclosures by certain SEC-registered private funds.
- Authorities’ view: the U.S. financial system is resilient and the banking system is, in aggregate, sound and well-capitalized; supervisors are reviewing liquidity risk management and updating practices, and recent SEC rules and market reforms should reduce structural vulnerabilities.

*Source: IMF staff summary of section titled "All in all, the evidence suggests the U.S. economy has largely returned to balance."*

### 43.       The ongoing intensification of trade restrictions and the increased use of preferential

### 1usaea2024001 - 43.       The ongoing intensification of trade restrictions and the increased use of preferential

### Trade restrictions, tariffs, and domestic-content provisions
- The U.S. maintains a range of import tariffs that distort resource allocation and increase trade costs, including in strategic sectors.
- Export controls have been extended on advanced computing chips and a new outbound investment mechanism will scrutinize certain categories of outbound investments of advanced technologies.
- Discriminatory policies favoring domestic producers include provisions in the Inflation Reduction Act, the CHIPS Act, and the Build America, Buy America Act.
- The recent review of the Section 301 tariffs on imports from China recommended expanding tariffs on certain products, including steel, aluminum, semiconductors, electric vehicles, batteries, critical minerals, solar cells, ship-to-shore cranes and medical products.
- Evidence suggests these tariffs will largely be borne by U.S. firms and, to a lesser extent, consumers (Box 11).
- The cumulative impact of tariff and domestic content provisions:
  - Distorts trade and investment decisions.
  - Disrupts global supply relationships.
  - Risks triggering retaliatory responses by trading partners.
- Recommendation: These tariffs and discriminatory domestic-content provisions should be removed.

### Industrial policy, subsidies, and fragmentation risks
- Since the start of the pandemic, the U.S. has intensified use of preferences for commercial interests; other countries have done likewise.
- Between 2009–22, the U.S. put in place over 3,000 subsidy measures, covering 63 percent of U.S. exports.
- Introduction of subsidies in either China, the European Union or the U.S. have, on average, a 74 percent probability of being reciprocated in the same product group by one of the other trading partners.
- Subsidies increase exports in targeted products relative to non-subsidized products, with similar effects found for the U.S. as in other countries.
- Industrial policies should be confined to specific objectives where externalities or market failures prevent effective market solutions, and even then should:
  - Minimize trade and investment distortions.
  - Be consistent with international obligations.
  - Avoid discriminating between domestic and overseas producers.
- Alternative competitiveness policies recommended: investments in worker training, apprenticeships, and infrastructure.

### Engagement with trading partners and multilateral system
- The U.S. should actively engage with all major trading partners to address core issues: unfair trade practices, supply chain fragilities, and national security concerns.
- Engagement should include:
  - Strengthening the WTO, including restoration of a well-functioning dispute settlement system by end-2024.
  - Finding common ground on tariffs, farm and industrial subsidies, and services trade.
  - Concluding new WTO-based market-opening agreements.
- Some negotiation advances noted (Indo-Pacific Economic Framework for Prosperity with thirteen partner countries; Critical Minerals Agreements with the EU, Indonesia, and the U.K.), but:
  - The trade pillar of the Indo-Pacific agreement has yet to be agreed.
  - Benefits may be constrained by a lack of market access commitments.
- Trade initiatives should advance open and free trade, not be used as discriminatory tools that create incentives for fragmentation.

### Authorities’ views and recent policy actions
- Administration goals: strengthen the middle class, ensure inclusive and sustainable growth, and deliver benefits broadly, including to workers.
- Steps taken to improve supply chain resilience, reliability, diversification and sustainability for critical goods and technologies.
- National security considerations have led to export controls and controls on outbound investment.
- Following an in-depth review, the USTR determined Section 301 tariff remedies were needed to combat unfair, non-market policies and practices in China linked to forced technology transfer and intellectual property theft; the U.S. has maintained existing tariffs and imposed new tariffs on strategic sectors.
- The U.S. continues channels for dialogue with China aimed at encouraging changes in practices that facilitate systemic, non-market policies.

### Box 11 — Impact of U.S. Tariffs (summary of empirical findings)
- In May 2024, recommendations were announced to maintain Section 301 tariffs initially imposed on China in 2018 and 2019, and to add or increase tariffs for certain products.
- Tariffs reconfigured supply chains, raised import prices and, overall, had modest negative effects on the U.S. economy.
- U.S. firms and importers bore the brunt of the tariffs through a one-for-one increase in import prices.
- Pass-through to retail prices was small; costs were apparently absorbed in corporate margins.
- Estimated effects:
  - Negative effect on U.S. welfare equivalent to 0.1 percent of GDP (Fajgelbaum and Khandelwal, 2022).
  - Reversing the 2018-19 tariffs would raise output by 0.4 percent after three years (Boer and Rieth, 2024).
  - China introduced retaliatory tariffs raising tariffs to around 21 percent on almost 60 percent of imports from the U.S., which reduced U.S. employment.
  - A 25 percent uniform tariff on Chinese imports, reciprocated by China, would reduce U.S. output by 0.2 percent (Caceres et al., 2019).
- Supply-chain reconfiguration:
  - U.S. imports from China dropped in sectors exposed to tariffs and were replaced by imports from other countries, particularly in strategic sectors.
  - Countries that increased exports to the U.S. on average imported more from China, implying continued reliance on China in supply chains.
  - Evidence of "connector countries" where greater Chinese presence correlated with higher exports from that country to the U.S.

### Financial, fiscal, and macro context (selected points linked to trade policy implications)
- U.S. performance: activity and employment exceed pre-pandemic expectations; 16 million new jobs created since end-2020.
- Inflation and monetary policy:
  - PCE inflation peaked at 7.1 percent in mid-2022.
  - The Federal Reserve raised the policy rate by 525bps.
  - PCE inflation was 2.7 percent in April and is expected to return to 2 percent by mid-2025.
  - Recommendation: The Federal Reserve should wait to reduce its policy rate until at least late 2024.
- Labor supply:
  - Inflow of foreign-born workers expanded the workforce by almost 3 percent over the past three years.
- Fiscal policy and public debt:
  - To put debt-GDP on a clear downward trajectory, a frontloaded fiscal adjustment is needed that shifts the general government to a primary surplus of around 1 percent of GDP (an adjustment of around 4 percent of GDP relative to the current baseline).
  - Options include raising indirect taxes, progressively increasing income taxes (including for those earning less than US$400,000 per year), eliminating a range of tax expenditures, and reforming entitlement programs.
- Financial stability:
  - Apply similar regulatory requirements to all banks with US$100 billion or more in assets (including supervisory stress tests).
  - Fully implement the final components of the Basel III agreement.

### Policy recommendations (synthesized)
- Unwind tariffs, nontariff barriers, and domestic-content provisions that discriminate between domestic and foreign commercial interests.
- Use trade engagement, multilateral fora, and WTO reform to address unfair practices, supply-chain fragilities, and national security concerns.
- Bolster U.S. competitiveness through:
  - Investments in worker training.
  - Apprenticeships.
  - Infrastructure.
- Confine industrial policies to narrowly defined objectives where market failures exist; minimize trade and investment distortions and respect international obligations.

*International Monetary Fund — United States: Selected Issues (excerpts as provided).*

### 56.      The evidence suggests that the U.S. economy has largely returned to balance. Labor

### The evidence suggests that the U.S. economy has largely returned to balance.

### Macroeconomic assessment and outlook
- Labor market imbalances have been mostly resolved with the economy now appearing to be operating slightly above maximum employment.
- By mid-2025, inflation is expected to return to the FOMC’s 2 percent goal which will allow the policy rate to return to a neutral setting.
- The external position is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
- The fiscal deficit is described as "much too large" and public debt is "well above prudent levels."
- Recommendation: Implementing the policy mix proposed in this report would help preserve macroeconomic balance going forward.
- Consultation timing: It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Key projections and statistics (selected indicators)
- Real GDP (2024): 2.6 percent
- Real GDP (q4/q4, 2024): 2.0 percent
- Unemployment rate (2024): 3.6
- Output gap (2024): 0.6 percent of potential GDP
- CPI inflation (q4/q4, 2024): 2.8
- Core PCE Inflation (q4/q4, 2024): 2.5
- Federal balance (% of GDP, 2024): -6.3
- Federal debt held by the public (% of GDP, 2024): 97.3
- General government gross debt (% of GDP, 2024): 123.2
- Current account balance (% of GDP, 2024): -2.9
- Net International Investment Position (2024): -71.6 percent of GDP

### Government finances and fiscal outlook
- Federal revenue (2024): 16.5 percent of GDP
- Federal expenditure (2024): 24.0 percent of GDP
- Federal debt held by the public (2024): 97.3 percent of GDP, projected to rise to 102.1 percent in 2025 and continue increasing in subsequent years (104.7 in 2026; 106.3 in 2027; 108.1 in 2028; 109.5 in 2029).
- General government revenue (2024): 29.6 percent of GDP
- General government expenditure (2024): 37.2 percent of GDP
- General government gross debt (2024): 123.2 percent of GDP, projected to reach 126.7 in 2025 and 129.6 in 2026.

### External sector and balance of payments
- Real exports growth (goods and services, 2024): 2.0 percent
- Real imports growth (goods and services, 2024): 2.9 percent
- Net exports contribution to real GDP growth (2024): -0.2 percentage points
- Current account balance (US$ billions, 2024): -829
- Financial account balance (2024): -2.9 percent of GDP
- Net International Investment Position (2024): -71.6 percent of GDP

### Financial sector soundness (selected FSIs, 2023)
- Regulatory capital to risk-weighted assets (2023): 15.90 percent
- Tier 1 capital to risk-weighted assets (2023): 14.88 percent
- Nonperforming loans to total gross loans (2023): 0.85 percent
- Return on assets (2023): 1.31 percent
- Return on equity (2023): 11.39 percent
- Customer deposits to total (noninterbank) loans (2023): 138.07 percent
- Residential real estate prices (percent change, y/y, 2023): 2.64 percent
- Commercial real estate prices (percent change, y/y, 2023): -7.53 percent
- Household debt to GDP (2023): 76.2 percent

### Risk Assessment: major risks, likelihoods, expected impacts, and policy responses
- Intensification of regional conflicts
  - Likelihood: High
  - Expected impact: Medium (trade disruptions, tighter financial conditions, weaker consumer confidence; shortages and higher energy costs could raise inflation)
  - Policy response: Increase resilience of financial intermediation and supply chains; adjust monetary policy; stand ready with targeted fiscal and financial support.
- Commodity price volatility
  - Likelihood: High
  - Expected impact: Medium (reduce corporate margins, weaken household consumption, increase poverty and inflationary pressures)
  - Policy response: Expand domestic food and fuel production; increase food assistance to lower income households; accelerate transition to low carbon; monetary policy responds to de-anchoring of inflation expectations.
- Deepening geoeconomic fragmentation
  - Likelihood: High
  - Expected impact: Medium (lower potential growth, reduced external demand for U.S. exports, constrained supply-chain networks)
  - Policy response: Invest in worker training and infrastructure; engage trading partners to maintain open trade policies; avoid further tariffs and domestic content provisions.
- Abrupt global slowdown
  - Likelihood: Medium
  - Expected impact: Medium (lower external demand, tighter financial conditions, weaker domestic activity)
  - Policy response: Accelerate monetary easing if strong evidence of disinflation; let automatic stabilizers operate in fiscal policy.
- Cyberthreats
  - Likelihood: Medium
  - Expected impact: High (widespread disruptions to economic activity, payments systems, and financial market infrastructures)
  - Policy response: Strengthen defenses and build operational resilience.
- Extreme climate events
  - Likelihood: Medium
  - Expected impact: Medium (damage to infrastructure and wealth, supply disruptions, possible inflationary pressures)
  - Policy response: Push green investment; invest in adaptation; provide targeted fiscal support; adjust monetary policy if needed.
- Premature loosening of monetary policy
  - Likelihood: Medium
  - Expected impact: High (continued nominal wage growth, higher unit labor costs, de-anchored inflation expectations)
  - Policy response: Adjust monetary policy to steer inflation and inflation expectations back to target.
- Tight-for-longer monetary policy
  - Likelihood: Medium
  - Expected impact: High (stress in leveraged corporates and financial institutions, abrupt market and housing corrections)
  - Policy response: Tighter financial conditions necessary for monetary transmission; consider targeted liquidity measures if market functioning is compromised.
- Systemic financial instability (including deposit outflows in regional banks)
  - Likelihood: Medium
  - Expected impact: High (weakened confidence, constrained credit availability)
  - Policy response: Strengthen prudential framework; provide adequate and timely emergency lending; ensure functioning of key markets; develop institutional change to avoid recurrent debt limit brinkmanship.

*Source: IMF staff assessment and tables (paragraphs 56–57, Tables 1–5, Annex I Risk Assessment Matrix).*

### Annex II. Sovereign Risk and Debt Sustainability Assessment

### Annex II. Sovereign Risk and Debt Sustainability Assessment

### Summary
- Following the unprecedented fiscal response to the COVID-19 outbreak, the budget deficit returned to pre-pandemic levels in 2022, only to be reversed in 2023 mainly due to lower income tax revenue and increasing interest rates.
- Under the baseline scenario, public debt is projected to rise as a share of GDP over the medium-term as aging-related expenditures on health and social security feed into the debt dynamics.
- Gross financing needs are large, albeit manageable given the global reserve currency status of the U.S. dollar.
- A credible medium-term fiscal adjustment featuring reprioritization of budget programs and revenue-gaining tax reform is needed to put public debt on a downward path.
- Nonetheless, the risks of debt distress are low, and debt is viewed as sustainable.

### Baseline projections
- Federal debt held by the public projected to increase from about 97 percent of GDP in FY2023 to around 116 percent of GDP by 2033.
- General government gross debt projected to rise from about 121 percent of GDP to 144 percent of GDP by 2033.
- Public debt (percent of GDP) path shown in projections:
  - 2023: 120.7
  - 2024: 123.2
  - 2025: 126.7
  - 2026: 129.6
  - 2027-2028: 131.8–134.0 (annual values in table)
  - 2029: 135.9
  - 2030: 137.9
  - 2031: 139.7
  - 2032: 141.6
  - 2033: 143.7
- Change in public debt (percent of GDP) each year (selected):
  - 2024: 2.5
  - 2025: 3.5
  - 2026: 2.8
  - 2033: 1.8–2.9 (table shows annual sequence including 1.8, 1.9, 2.1)
- Primary general government deficit:
  - 2023: 4.1 percent of GDP
  - 2024 (projected): 3.8 percent of GDP
  - Projected primary deficits across 2024–2033 shown in baseline table (e.g., 2025: 3.4; 2026: 3.0; 2027: 2.6; 2028: 2.8; 2029: 2.5; 2030: 2.7; 2031: 2.6; 2032: 2.7; 2033: 2.9).

### Adjustment scenario and policy implications
- Gradually raising the primary general government surplus over the medium-term to around 1 percent of GDP (1.4 percent of GDP for the federal government) would put the debt-to-GDP ratio on a declining path.
- Staff views this adjustment as feasible.
- The target primary surplus would have to be larger to bring the debt ratio closer to pre-Great Recession levels.
- Policy priorities implied:
  - Reprioritization of budget programs.
  - Revenue-gaining tax reform.
  - Measures to contain long-term age-related spending pressures (see long-term risks).

### Debt servicing costs and financing
- Effective nominal interest rate projected to stabilize at 3.3 percent by 2033 after peaking at 4.0 percent in 2024.
- Government interest payments are expected to rise with higher interest rates.
- Gross financing needs (GFN) shown in baseline table (percent of GDP):
  - 2023 actual: 55.0
  - 2024: 42.4
  - 2025: 37.1
  - 2026: 34.6
  - 2027 onward: 32.0, 32.3, 31.0, 30.4, 30.6, 30.8, 30.4 (annual sequence in table).
- Of which: debt service (GFN component) indicated in table (selected years):
  - 2023: 51.4
  - 2024: 39.1
  - 2025–2033: values shown annually (e.g., 2026: 34.2; 2027: 32.1; 2028: 29.9; 2033: 28.0).
- Memo macro assumptions from baseline table:
  - Real GDP growth (percent): 2023 actual 2.5; projections include 2.6, 1.9, 2.0, 2.1, 2.1, 2.1, 1.7, 1.7, 1.7.
  - Inflation (GDP deflator; percent): 2023 actual 3.6; projections broadly 2.5, 2.0, 1.8, 1.8, 1.8, 1.8, 1.8, 1.8, 1.8, 1.8.
  - Effective interest rate (percent): 2023 actual 3.5; projected values include 3.9, 4.0, 3.8, 3.7, 3.5, 3.5, 3.4, 3.4, 3.4, 3.3.

### Long-term risks: Health and Social Security
- Health:
  - CBO projects net federal spending on major health care programs to increase from 5.6 percent of GDP in 2024 to 8.3 percent of GDP in 2054.
  - Increase driven primarily by a two-thirds surge in health care costs, with the remainder attributed to population aging.
  - Policy levers to contain health spending include increasing efficiency, greater cost sharing with beneficiaries, and changing the mechanism of remunerating healthcare providers.
- Social Security:
  - Social Security spending projected to rise from 5.2 percent of GDP in 2024 to 5.9 percent of GDP in 2034.
  - Number of Social Security beneficiaries projected to rise from 68 million in 2024 to 80 million in 2034 (increase of 12 million).
  - By 2054, beneficiary count forecast to grow by an additional 16 million to 96 million beneficiaries, equivalent to 25 percent of the population.
- Long-term risks are classified as moderate as aging-related expenditures feed into debt dynamics.

### Realism of assumptions and mitigating factors
- Baseline economic assumptions are generally within the error band observed for all countries.
- Baseline fiscal projections and implied near-term adjustment are realistic and within the median range of adjustment in historical and cross-country experience.
- Mitigating factors for high external and gross financing requirements:
  - Depth and liquidity of the U.S. Treasury market.
  - Safe-haven status of the United States.
  - Lack of foreign currency debt.
  - Large institutional investor base.
  - While foreign official holdings of U.S. Treasuries remain stagnant, an increase in overall foreign ownership backed by nonofficial foreign investors suggests robust demand.

### Risk assessments and indicators
- Staff's overall assessment: United States is at a low overall risk of sovereign stress and debt is sustainable.
- Medium-term: Staff's assessment on the medium-term risk is "moderate", aligned with the mechanical signal; mechanical medium-term signal for the fan chart indicates a marginally "high" risk driven by probability of debt non-stabilization and large uncertainty.
- Medium-term modules (values from medium-term risk analysis):
  - Debt fanchart index (DFI): 2.2 => Risk signal: High (DFI above 2.08 is high).
  - Probability of debt non-stabilization: 88.4 percent.
  - Terminal debt-to-GDP x institutions index: 32.7.
  - GFN financeability index (GFI): 15.8 => Risk signal: Moderate (GFI between 7.6 and 17.9 is moderate).
  - Average baseline GFN: 34.9 percent of GDP.
  - Initial banks' claims on general government: 10.4 (pct bank assets).
  - Chg. in banks' claims in stress: 1.6 (pct banks' assets).
- Medium-term final assessment: Prob. of missed crisis, 2024-2029, if stress not predicted: 45.5 pct; Prob. of false alarms, 2024-2029, if stress predicted: 10.2 pct.
- Long-term: Long-term amortization module does not trigger an overall risk indication, though long-term projections show a steady increase in debt-to-GDP ratio and GFN-to-GDP ratio.
- DSA summary commentary: Most indicators have started to normalize as recovery from COVID-19 progressed; debt expected to rise for several years before stabilizing; medium-term liquidity risks per the GFN Financeability Module are moderate; over the long run, reforms to tackle aging-related social security risks are recommended, with authorities' planned measures helping contain risks.

### Key statistics and model outputs (selected)
- Fiscal shock: fiscal deficit increased by over 8 percent of GDP during COVID-19 fiscal expansion.
- Primary general government deficit: 2023 = 4.1 percent of GDP; 2024 projected = 3.8 percent of GDP.
- Target primary surplus for debt decline: ~1 percent of GDP (general government); 1.4 percent of GDP for federal government.
- Effective nominal interest rate: peak 4.0 percent (2024); stabilize at 3.3 percent (2033).
- CBO health spending projection: 5.6 percent of GDP (2024) to 8.3 percent of GDP (2054).
- Social Security spending: 5.2 percent of GDP (2024) to 5.9 percent of GDP (2034).
- Social Security beneficiaries: 68 million (2024); 80 million (2034); 96 million (2054, 25 percent of population).
- Public debt levels (selected): general government gross debt about 121 percent of GDP (baseline current) rising to 144 percent of GDP by 2033.
- Gross financing needs: average baseline GFN 34.9 percent of GDP; 2023 actual GFN 55.0 percent of GDP.

*Source: Fund staff.*

### Annex II. Figure 8. United States: Demographics: Health

### Annex II. Figure 8. United States: Demographics: Health

### Health demographics — projections and scenario
- Commentary: Demographic trends project an steady increase in GFN-to-GDP ratio and Debt-to-GDP ratio. Should additional excess cost growth (ECG) occur at the standard 1.4 percent, GFN and Debt-to-GDP ratio would be about 7 pp and 25pp higher by 2052, respectively.
- Displayed series (years shown): 2016, 2019, 2022, 2025, 2028, 2031, 2034, 2037, 2040, 2043, 2046, 2049, 2052.
- Chart legend entries preserved exactly as in source:
  - Baseline: Custom
  - Health (Demographics)
  - Health (Demographics + ECG)

### Key numeric notes from figure text
- Excess cost growth (ECG) used in scenario: 1.4 percent.
- Impact by 2052 if ECG occurs at 1.4 percent:
  - GFN-to-GDP ratio about 7 pp higher by 2052.
  - Debt-to-GDP ratio about 25pp higher by 2052.

### Figure axes ranges (as shown in figure)
- GFN-to-GDP Ratio axis range: 0.0 to 250.0 (increments shown).
- Total Public Debt-to-GDP Ratio axis range: 0.0 to 80.0 (increments shown).

---

### Annex III. External Sector Assessment

### Overall assessment (2023 and medium term)
- Overall Assessment: the external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- 2023 current account (CA) deficit: 3.0 percent of GDP (versus 3.8 percent of GDP in 2022).
- Drivers of 2023 improvement: decline in goods deficit due to reduced imports of goods; slight increase in service surplus; income accounts broadly stable.
- Medium-term CA projection: CA deficit is projected to decline to about 2¼ percent of GDP over the medium term based on an increase in net public saving due to fiscal consolidation and a slow convergence of private saving to its steady state after years of excess saving drawdowns.

### Potential policy responses (medium term)
- Fiscal: suggested fiscal consolidation aimed at a medium-term general government primary surplus of about 1 percent of GDP to broadly stabilize the debt-to-GDP ratio and maintain an external position consistent with medium-term fundamentals and desirable policies.
- Structural: upgrade infrastructure; enhance schooling, training, apprenticeship, and mobility of workers; support the working poor; implement policies to increase growth in the labor force (including skill-based immigration reform).
- Industrial policy: remain narrowly targeted to specific objectives where externalities or market failures prevent effective market solutions and avoid favoring domestic producers over imports.
- Trade policy: roll back tariff barriers and other trade distortions; resolve trade and investment disagreements in a manner that supports an open, stable, and transparent global trading system.

---

### Foreign asset and liability position and trajectory

### Background and 2023 snapshot
- NIIP at end-2023: –70.7 percent of GDP (weakened from –61.2 percent of GDP in 2022 and compared to the 2016-19 pre-pandemic average of about –46½ percent of GDP).
- Contribution to NIIP decline: about a quarter attributed to net transactions; main driver was valuation adjustments from a significant rise in U.S. stock prices relative to foreign stocks.
- Currency effect: small depreciation of the U.S. dollar (around 1.7 percent) raised the value of foreign-currency denominated U.S. assets in dollar terms, marginally offsetting about 10 percent of the negative impact of rising stock prices on the NIIP.
- IMF staff baseline projection: NIIP projected to remain broadly unchanged through the medium-term on improvements in net portfolio investment position as the CA balance reverts to its pre-pandemic average and valuation gains persist.

### Assessment and risks
- External debt: declined to around 87 percent of GDP in 2023 (down from its mid-2020 peak of nearly 110 percent of GDP and the 2016-19 average of 94 percent of GDP).
- Investment income: remained positive as the yield on assets has consistently surpassed that of liabilities.
- Currency composition: share of external assets denominated in foreign currencies increased to around 70 percent by 2020; an even larger share of U.S. dollar denominated external liabilities.
- Valuation channel: depreciation generally improves the NIIP.
- Financial stability risk: could surface from an unexpected decline in foreign demand for U.S. fixed-income securities (a main component of external liabilities); risk remains moderate given the dominant status of the U.S. dollar as a reserve currency and mitigating factors of strong institutions and a predictable policy framework.
- Asset composition: about 60 percent of U.S. assets are in the form of FDI and portfolio equity claims.

### 2023 asset/liability numeric summary (% GDP)
- NIIP: –70.7
- Gross Assets: 123.6
- Debt Assets: 37.9
- Gross Liab.: 194.3
- Debt Liab.: 87.2

---

### Current account

### Background and dynamics
- 2023 CA deficit: 3.0 percent of GDP (down from 3.8 percent in 2022).
- Cyclically adjusted terms: moved from 3½ to 2.6 percent of GDP.
- Pre-pandemic comparator: 2016-19 pre-pandemic deficit of around 2 percent of GDP.
- 2023 trade deficit: contracted relative to 2022 (-2.8 versus -3.7 percent of GDP).
- Savings-investment perspective: CA deficit reflected public sector’s savings-investment deficit, partly offset by private sector’s savings-investment surplus.
- Medium-term expectation: CA deficit expected to gradually decline to about 2¼ percent of GDP.

### Model estimates and staff assessment (2023, % GDP)
- CA: –3.0
- Cycl. Adj. CA: –2.6
- EBA Norm: –1.9
- EBA Gap: -0.7
- Staff Adj.: 0
- Staff Gap: –0.7

### Interpretation of gaps
- EBA model cyclically adjusted CA balance: -2.6 percent of GDP against a CA norm of -1.9 percent of GDP, standard error 0.7 percent of GDP → model-based CA gap of –0.7 percent of GDP for 2023.
- Identified policy gaps contribution: –0.7 percent of GDP (primarily from more expansionary fiscal policy in the U.S. relative to the rest of the world resulting in -0.8 percent of GDP contribution from the fiscal policy gap).
- IMF staff assesses a CA gap range of -1.4 and 0 percent of GDP with a midpoint of -0.7 percent of GDP.

---

### Real exchange rate (REER)

### Background and recent movements
- REER appreciation in 2022: 8.3 percent.
- REER depreciation in 2023: 0.5 percent (when yearly averages are compared).
- As of April 2024: REER about 2 percent above the 2023 average.

### Assessment of valuation (2023)
- IMF staff CA gap implies a REER overvalued by 5.8 percent in 2022 (with estimated elasticity of 0.12 applied).
- EBA REER index model suggests an overvaluation of 8.3 percent.
- EBA REER level model suggests an overvaluation of 16.7 percent.
- IMF staff 2023 midpoint REER overvaluation assessed to be 5.8 percent, with a range of 11.6 to 0 percent (range obtained from CA standard error and corresponding CA elasticity).

---

### Capital and financial accounts: flows and policy measures

### 2023 flows
- Financial account balance in 2023: approximately –3.0 percent of GDP (slight improvement from –3.1 percent of GDP in 2022).
- Flow drivers: increase in net other investment and net financial derivatives; partly offset by declines in net portfolio investment and net direct investment.

### Assessment
- Capital account openness: the U.S. has an open capital account.
- Vulnerabilities limited by: U.S. dollar’s reserve currency status, foreign demand for U.S. Treasury securities supported by reserve status and possible safe-haven flows.

---

### FX intervention and reserves level
- Assessment: U.S. dollar has the status of a global reserve currency.
- Reserves: reserves held by the U.S. are typically low relative to standard metrics.
- Exchange rate regime: currency is free floating.

---

### Annex IV. Progress on Past Policy Recommendations (selected items)

### Previously recommended policies and actions taken
- Raise the policy rate to around 5¼-5½ percent and maintain it at such levels until end-2024.
  - Action: Policy rates were increased rapidly to 5¼ percent by July 2023.
- Improve Treasury market functioning (central clearing, modify supplementary leverage ratio, liquidity stress tests for asset managers, lock-in provisions, swing pricing, gates, allow in-kind redemptions).
  - Action: Changes made to increase oversight of principal trading firms, require central clearing of UST-collateralized repo/reverse repo transactions, improve data, and increase liquidity requirements for money market funds.
- Supply side reforms (childcare subsidies, paid family leave, remove cliffs in social benefits, increase access to healthcare, education, vocational training, immigration reform).
  - Action: Health insurance premium subsidies renewed. Little progress in other areas (president’s budget proposes similar policies in some areas).
- Tax reform (higher corporate tax, removing loopholes such as carried interest and step-up basis, reducing estate tax minimum, global agreement on minimum tax).
  - Action: No progress (president’s budget proposes similar policies in some areas).
- Improve safety net (expand SNAP, improve TANF and Medicaid, make refundable child tax credit permanent, expand EITC).
  - Action: No progress (president’s budget proposes similar policies in some areas).
- Put debt-GDP on downward path through a 1 percent of GDP general government primary surplus (i.e., a 5 percent of GDP adjustment).
  - Action: General government primary deficit expected to remain around 3 percent of GDP over the medium-term. President’s budget proposes around a 1¼ percent of GDP reduction in the federal primary deficit over the medium-term.
- Roll back tariffs and other trade distortions and restore functioning dispute settlement at WTO.
  - Action: Domestic content requirements remain in various laws. Recent increases in tariffs represent a step backwards. No progress on WTO reforms.
- Climate action (pricing of carbon, regulatory restraint on emissions, feebates, eliminate subsidies for fossil fuels and carbon-intensive agriculture, reprioritize spending to mitigation and adaptation goals).
  - Action: Inflation Reduction Act provides US$391 billion for emissions reduction, transition and adaptation. No pricing of carbon proposed.

---

### FSAP recommendations — selected areas and developments

### Systemic risk oversight and macroprudential framework
- Recommendation: Provide an explicit financial stability mandate to all federal FSOC members.
  - Responsible: Congress.
- Recommendation: Prioritize development of macroprudential tools to address risks in the nonbank sector.
  - Responsible: FSOC.
  - Developments: FSOC identified nonbank financial intermediation as one of four key priorities; in November 2023 issued Analytic Framework for Financial Stability Risk Identification, Assessment and Response and updated Interpretive Guidance for Nonbank Financial Company Determinations (Nonbank Designations Guidance).
  - The Analytic Framework details vulnerabilities, transmission channels, and range of authorities (interagency coordination, recommendations, or designation of entities).
  - Revised Nonbank Designations Guidance establishes a durable process for FSOC’s review of nonbank financial companies for potential designation under section 113 of the Dodd-Frank Act.

### Data gaps and monitoring (OFR developments)
- Recommendation: Intensify efforts to close data gaps, including reporting disclosures of holdings of CLOs and repo markets.
  - Responsible: OFR.
  - Developments:
    - February 2019: OFR promulgated 12 CFR Part 1610 for Ongoing Data Collection of Centrally Cleared Transactions in the U.S. Repurchase Agreement Market; data collection from covered reporters began October 2019 (requires submission by central counterparties with average daily total open repo commitments of at least $50 billion).
    - May 6, 2024: OFR promulgated rule for Ongoing Data Collection of Non-centrally Cleared Bilateral Transactions in the U.S. Repurchase Agreement Market (part of 12 CFR 1610). Reporting thresholds: companies with at least $10 billion in average daily total outstanding commitments to extend guarantees on and borrow cash through NCCBR transactions over all business days during the prior calendar quarter must report transaction-level NCCBR data daily.
    - Aggregated cleared repo transaction OFR data and triparty repo data feed into OFR’s Short-Term Funding Monitor (launched 2020) available via an application programming interface.

- JADE platform:
  - In 2023 OFR launched the Joint Analysis Data Environment (JADE) for FSOC member agencies to analyze risks to financial stability, combining public, proprietary and non-public government data; designed with climate-related financial risk as the first use case; available only to OFR and FSOC member agency researchers, analysts, and support staff.

### Banking regulation and supervision
- Recommendation: Review prudential requirements for non-internationally active banks (Category III and IV), ensure consistency with Basel capital framework, consider extending full LCR.
  - Responsible: FRB, FDIC, OCC (S&R/FBAs).
  - Developments: Agencies issued the Basel III endgame proposal in July 2023 applying elements of international standards to Category III and IV firms (Basel’s definition of capital including AOCI flow through and risk-based capital framework); agencies reviewing comments including scope of applicability.
- Recommendation: Streamline regulatory requirements and consider rewriting key prudential guidance as regulation.
  - Responsible: FRB, FDIC, OCC (S&R/FBAs).
  - Developments: Agencies continue to revise or make inactive outdated guidance; February 2024: Board, FDIC, OCC announced first of series of requests for comment to reduce regulatory burden consistent with the Economic Growth and Regulatory Paperwork Reduction Act of 1996 review every 10 years.
- Recommendation: Introduce heightened governance standards for large and complex BHCs, enhance related-party framework, rules on concentration risk management, and more quantitative standards on interest rate risk in the banking book.
  - Responsible: FRB, FDIC, OCC (S&R/FBAs).
  - Developments: Board introduced “Supervisory Guidance on Board of Directors’ Effectiveness” for BHCs with total consolidated assets of $100 billion or more; agencies issued guidance on funding and liquidity risk including contingency planning with an August 2023 addendum; agencies continue to evaluate supervision and regulation of interest rate risk management.

### Insurance regulation and supervision
- Recommendation: Increase independence of state insurance regulators with appropriate accountability.
  - Responsible: States (NAIC).
- Recommendation: Require transition to principles-based reserving (PBR) for in-force life insurance after a five-year transition period; adjust asset valuation approach to ensure consistency between assets and liabilities; recalibrate RBC to revised valuation approach.
  - Responsible: NAIC.
- Recommendation: Develop a consolidated group capital requirement similar to GAAP-Plus insurance capital standard (ICS) for internationally active groups and optionally for domestic groups in parallel with aggregation approaches by the Board and NAIC.
  - Responsible: NAIC and FRB.
  - Developments: March 2023 IAIS decision not to advance GAAP with Adjustments “GAAP Plus” for inclusion in the ICS; Board and NAIC developed aggregation approaches (Building Block Approach and Group Capital Calculation); October 2023: Board adopted final regulation implementing the Building Block Approach capital requirement, effective January 1.

*Source: Annex II–V content from the provided IMF United States staff report excerpts.*

### 2024. The United States—along with other interested jurisdictions—is developing an

### 1usaea2024001 - 2024. The United States—along with other interested jurisdictions—is developing an

### Aggregation Method / International Insurance Capital Standard (ICS)
- The United States and other jurisdictions are developing an Aggregation Method at the IAIS.
- The NAIC adopted the Group Capital Calculation in 2020 and over half the states now require the GCC to be filed, with all states expected to adopt the GCC by January 1, 2026, when it becomes an Accreditation Standard.
- The IAIS has developed high-level principles and criteria to assess whether the Aggregation Method provides comparable outcomes to the ICS by the end of the monitoring period.
- The Board and NAIC believe the Aggregation Method is comparable to the ICS and should be considered by the IAIS and its member jurisdictions to be an outcome-equivalent approach for implementation of the ICS.
- No U.S. regulator intends to adopt the ICS in its current form.

### Regulation, Supervision, and Oversight of FMIs
- Recommendation: Increase CFTC resources devoted to CCP supervision and strengthen rule-approval process to an affirmative approval with a public consultation.
  - Responsible: CFTC
  - Developments: On December 28, 2020, March 15, 2022, December 29, 2022, and March 8, 2024 Congress approved additional resources to the CFTC.
- Recommendation: Collaborate to analyze differences in outcomes of CCP risk management practices and adopt an appropriately consistent, conservative implementation of risk management standards across CCPs.
  - Responsible: FRB, SEC, CFTC
  - Developments: Board, SEC, and CFTC implemented frameworks mandated by Title VIII of the Dodd-Frank Act consistent with the PFMI; continue to cooperate on oversight, examinations, and reviews of CCP risk management practices and proposed framework changes. FMU Committee within FSOC continues periodic review of DFMUs and monitoring of FMU-related risks. Reference to May 10, 2024 FSOC meeting.

### Systemwide CCP Supervisory Stress Tests
- Recommendation: Develop and execute more comprehensive systemwide CCP supervisory stress tests.
  - Responsible: FRB, CFTC, SEC
  - Developments: Preparatory work began in 2019; progress paused due to COVID-related developments and geopolitical events; engagement will resume.
  - Related actions: SEC developed a COVID-19 Market Monitoring Group; CFTC co-chairs international working group on effects of margin demands during extreme market stress. Relevant standard-setting bodies published consultative report in late 2021, final report near end of 2022, and supplemental report in 2023. FMIs were deemed sufficiently robust during COVID-19 crisis (U.S. FSAP Technical Note, July 2020).

### Securities Regulation and Supervision
- Recommendation: Give CFTC and SEC greater independence to determine their own resources, with appropriate accountability.
  - Responsible: Congress
- Recommendation: Assess financial stability risks related to mutual funds and stable NAV MMFs, including through SEC-led liquidity stress testing.
  - Responsible: SEC
  - Developments:
    - On July 12, 2023, the SEC adopted MMF reforms and amendments to Form PF reporting requirements for large liquidity fund advisers aimed at improving resilience and transparency of MMFs (increasing minimum liquidity requirements; removing temporary suspension of redemptions provision; removing regulatory tie between liquidity fees and fund liquidity level; requiring liquidity fee frameworks; enhancing reporting).
    - On February 8, 2024, CFTC and SEC jointly adopted amendments to Form PF to enhance reporting by large hedge fund advisers and large private equity advisers, amend reporting of complex structures, and remove aggregate reporting for large hedge fund advisers.
    - On May 3, 2023, the SEC adopted amendments to Form PF requiring current reporting by large hedge fund advisers of certain events and quarterly event reporting for all private equity fund advisers; also requires enhanced reporting by large private equity advisers.
    - On November 2, 2022, the SEC proposed enhancements to the open-end fund liquidity framework (Open-End Fund Liquidity Risk Management and Swing Pricing; Form N-PORT Reporting).
- Recommendation: Conclude implementation of new broker-dealer capital rules; finalize market-wide circuit breakers; deliver the Consolidated Audit Trail.
  - Responsible: SEC
  - Developments:
    - On June 21, 2019, SEC adopted final rules addressing Title VII requirements; compliance date October 6, 2021.
    - MWCBs were triggered four times in March 2020; SROs’ MWCB rules made permanent in March and April 2022 without operational modification; added testing and reporting requirements.
    - Consolidated Audit Trail implementation plan filed July 22, 2020; ongoing quarterly progress reports.

- Recommendation: Increase scrutiny of new registrants and reduce reliance on self-attestations where applicable.
  - Responsible: SEC, CFTC, NFA
  - Developments:
    - SEC Division of Examinations considers newly registered status as a risk factor; on March 27, 2023 published a Risk Alert on examinations of newly-registered investment advisers.
    - Newly CFTC registered CPOs become eligible for NFA examination immediately via NFA's risk assessment/model function.

### Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT)
- Recommendation: Legislate to collect beneficial ownership information on formation of U.S. corporations, maintain it, and ensure timely access for authorities.
  - Responsible: Congress
- Recommendation: Ensure that investment advisers, lawyers, accountants, and company service providers are effectively regulated and supervised for AML/CFT in line with risks.
  - Responsible: Treasury (TFFC)
  - Developments:
    - February 2024: FinCEN issued a proposed rule to require certain investment advisers to apply AML/CFT requirements under the BSA (risk-based AML/CFT programs, suspicious activity reporting, recordkeeping).
    - May 2024: FinCEN and SEC jointly issued a proposed rule for certain investment advisers to implement Customer Identification Programs (“CIPs”).
    - Treasury aims to finalize these rulemakings expeditiously and to address other AML/CFT vulnerabilities in preparation for the United States’ upcoming fifth-round FATF mutual evaluation.

### Systemic Liquidity
- Recommendation: Promote fungibility of Treasury Securities and Reserves by adjusting assumptions about firms’ access to the Discount Window in liquidity metrics.
  - Responsible: FRB (S&R with MA)
  - Developments: No changes made since the FSAP was conducted.
- Recommendation: Continue to operate regular fine-tuning OMOs.
  - Responsible: FRB
  - Developments: In current operating environment, with reserves in excess of $3 trillion, no fine-tuning or reserve management OMOs are needed.
- Recommendation: Advance arrangements for providing liquidity to systemic nonbanks and CCPs under stress, and reconsider restrictions on bilateral ELA to designated systemically important nonbanks.
  - Responsible: FRB, Treasury
  - Developments: No changes made since the FSAP was conducted. Federal Reserve can provide liquidity to systemic nonbanks via broad-based facilities under Section 13(3). For an FSOC-designated systemic CCP, the Federal Reserve is authorized to provide bilateral liquidity in unusual or exigent circumstances (among other restrictions). Recommendation to reconsider restrictions on bilateral ELA should be directed to Congress.
- Recommendation: Develop robust and effective backup plans if Bank of New York Mellon (BNYM) is unable to settle and clear repo transactions.
  - Responsible: FRB (S&R with NY and RBOPS)
  - Developments: Federal Reserve engaged market participants; industry has advanced contingency planning and preparedness for communications; Federal Reserve continues discussions to support industry implementation.
- Recommendation: Enhance arrangements to provide liquidity support in foreign currencies to banks and designated systemically important CCPs.
  - Responsible: FRB
  - Developments: No changes made since the FSAP was conducted.

### Crisis Preparedness and Management
- Recommendation: Intensify crisis preparedness.
  - Responsible: FSOC, FRB, FDIC, OCC (S&R/FBAs)
  - Developments: FSOC promotes information sharing and collaboration on crisis-management planning and tools; FBAs led and participated in 2023 and continue interagency and cross-border engagements, including trilateral work with U.S., UK, and European authorities on G-SIB resolution issues.
- Recommendation: Continue to use agency discretion actively to subject a wider array of firms to RRP.
  - Responsible: FRB, FDIC, OCC (S&R/FBAs)
  - Developments: Revised resolution plan rule (2019) resulted in several firms becoming subject to Title I resolution plan requirement. OCC completed recovery plan reviews at all banks subject to 12 CFR 30; hosted industry roundtable with covered banks.
- Recommendation: Continue to undertake, at least yearly, DFA Title II plans, resolvability assessments, and CMG discussions of RRPs and assessments.
  - Responsible: FRB, FDIC
  - Developments: FBAs continue reviewing RRPs with increased focus on testing firms’ resiliency, recoverability, and resolvability. FDIC and Board co-chair annual CMG meetings for U.S. G-SIBs with OCC and SEC participation. FDIC has undertaken institution-specific strategic planning and continues to build process documents for Title II resolution. In April 2024, FDIC published “Overview of Resolution under Title II of the Dodd-Frank Act.”
- Recommendation: Extend OLA powers to cover FBOs’ U.S. branches; ensure equal depositor preference ranking for overseas branch deposits with domestic deposits; introduce powers to give prompt and predictable legal effect to foreign resolution measures.
  - Responsible: Congress

### Data Issues and Data Adequacy Assessment
- Annex VI provides:
  - Table 1. United States: Data Adequacy Assessment for Surveillance
  - Table 2. United States: Data Standards Initiatives
- Sectoral notes and ratings (selected):
  - National Accounts: AAAA
  - Prices: ABA
  - Government Finance Statistics: Coverage AAAA, Granularity AAAAA
  - External Sector Statistics: Consistency AA
  - Monetary and Financial Statistics: Granularity AA; Frequency and Timeliness AAA
  - Inter-sectoral Consistency: Median Rating A
- Assessment highlights:
  - Staff assesses overall data quality to be adequate for Fund surveillance.
  - Need to reconcile the saving-investment balance in national accounts with the current account balance in the BOP due to a widening discrepancy.
  - To align with BPM6: trade of goods should be recorded based on residency; goods imported by nonresident construction companies should be included as goods in the balance of payments; values of illegal or smuggled activities should be estimated and included.
  - Other data gaps: encourage continued efforts to advance financial sector statistics including banks’ holdings of CLOs, CRE loan holdings by types of properties, and linkages to nonbanks.
- Notes:
  - United States adheres to SDDS Plus since February 2015.

*1usaea2024001 - 2024. The United States—along with other interested jurisdictions—is developing an*

### Annex VI. Table 3. United States: Table of Common Indicators Required for Surveillance

### Annex VI. Table 3. United States: Table of Common Indicators Required for Surveillance (As of June 19, 2024)

### Data provision and coverage
- Data Standards: Entries reflect information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e‑GDDS participants, available from the IMF Dissemination Standards Bulletin Board.
- Indicators listed (as presented):
  - Exchange Rates
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Reserve/Base Money
  - Broad Money
  - Central Bank Balance Sheet (including currency and maturity composition)
  - Consolidated Balance Sheet of the Banking System
  - Interest Rates (both market‑based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds)
  - Consumer Price Index
  - Revenue, Expenditure, Balance and Composition of Financing ‒ General Government (foreign, domestic bank, and domestic nonbank financing)
  - Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government
  - International Investment Position
  - Stocks of Central Government and Central Government‑Guaranteed Debt
  - External Current Account Balance
  - Exports and Imports of Goods and Services
  - GDP/GNP
  - Gross External Debt
- Frequency/timeliness notation used in the table: “D” daily; “W” weekly or with a lag of no more than one week after the reference date; “M” monthly or with lag of no more than one month after the reference date; “Q” quarterly or with lag of no more than one quarter after the reference date; “A” annual; “SA” semiannual; “I” irregular; “NA” not available or not applicable; and “NLT” not later than.
- Note: For countries not participating in the Data Standards Initiatives, entries are shown as "..." (applies to non‑U.S. cases in the broader dataset framework).

*Source: IMF staff table — Annex VI, Table 3 (United States).*

---

### Annex VII. Transnational Aspects of Corruption — Supply‑Side of Corruption

### Key findings from the OECD WGB Phase 4 Follow‑Up (October 2022) as presented
- Enforcement activity (as of the October 2022 Follow‑up Report):
  - U.S. Department of Justice (DOJ) had resolved new supply‑side enforcement actions regarding at least 11 legal persons in 9 foreign bribery schemes, imposing $4.7 billion in monetary penalties.
  - Securities and Exchange Commission (SEC) had brought at least 13 enforcement actions in relation to 10 schemes, imposing $1.3 billion in civil or administrative penalties.
- DOJ and SEC reported maintenance of sufficient data on detection sources in foreign bribery matters.
- DOJ developed internal guidance on corporate recidivism; prosecutors instructed to consider all prior wrongdoing by the company itself and related corporate entities.

### Recommendations and outstanding issues
- Continue addressing Phase 4 recommendations on:
  - Whistleblower protections and incentives (noting that protections vary depending on whether reports are made to the SEC or to the DOJ and that whistleblowers who report only to the DOJ or whose reports concern FCPA violations by non‑issuers have very limited protections).
  - Corporate recidivism (recommendation to enhance public awareness of recidivism’s impact on sanction levels or choice of resolution).
  - Data on debarment decisions (further consideration of alternative data collection methods for debarments against businesses based on foreign bribery).

*Source: Annex VII text summarizing OECD WGB Phase 4 Follow‑Up findings (October 2022) as presented in the IMF report.*

---

### Fund Relations and Macroeconomic Engagement

### Membership and IMF financial positions (as of April 30, 2024)
- Membership Status: Joined: December 27, 1945; Article VIII.
- General Resources Account (SDR Million; Percent of Quota):
  - Quota 82,994.20 100.00
  - IMF's Holdings of Currency (Holdings Rate) 60,424.18 72.81
  - Reserve Tranche Position 22,570.07 27.19
- SDR Department:
  - Net cumulative allocation 114,861.89 100.00
  - Holdings 125,575.44 109.33
- Outstanding Purchases and Loans: None
- Financial Arrangements: None
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Charges/Interest: 0.88 (2024), 0.88 (2025), 0.88 (2026), 0.88 (2027), 0.88 (2028)
  - Total: 0.88 0.88 0.88 0.88

### Exchange rate arrangement
- De jure and de facto classification: free floating.
- The last notification of measures imposed for security reasons was made on Feb 26, 2024.

### Article IV consultation (2024)
- Consultation concluded on June 27, 2024; Staff Report published as IMF Country Report No. [24/232].
- 2024 Article IV discussions: May 28–June 13, 2024.
- Concluding meetings: Chair Powell (Federal Reserve) June 24; Treasury Secretary Yellen June 27. Managing Director Ms. Georgieva participated in concluding meetings.
- Team members include Nigel Chalk (head), Anahit Aghababyan, Jaebin Ahn, Euihyun Bae, Philip Barrett, Mai Dao, Josef Platzer, Brandon Tan, Jing Zhou (WHD), Zhuohui Chen (MCM), Oliver Exton, Fah Jirasavetakul, and Elizabeth Van Heuvelen (SPR). Ms. Elizabeth Shortino (Executive Director) and Mr. David Wright (Advisor) attended some meetings.

*Source: IMF Fund Relations section and Article IV consultation details.*

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### Executive Director’s Statement (July 17, 2024)

### Overall assessment and priorities
- Broad concurrence with staff’s assessment that the U.S. economy has been resilient and continues to see strong growth.
- Highlights of U.S. performance cited:
  - Historic and equitable economic recovery since the start of the Biden Administration.
  - Expanding labor force and low unemployment.
  - Rising business investment and a significant decline in inflation.
  - Federal Reserve managing the disinflation process adeptly.
- Administration priorities and policy stance:
  - Maintain prudent, forward‑looking policies to support medium‑to‑long‑term growth.
  - Investing in America agenda: boosting long‑term productivity, addressing inequality, and mobilizing private sector investment.
  - Commitment to lower costs for working families (prescription drugs, health insurance premiums, utility bills).
  - Support for fiscal responsibility and debt sustainability.

### Fiscal policy highlights
- Concurrence with staff’s finding that the United States is “at low overall risk of sovereign stress and debt is sustainable.”
- Legislative and budgetary actions:
  - President signed bipartisan legislation that will reduce the deficit by more than $1 trillion.
  - President proposed a budget that would yield $3 trillion in savings over the next ten years.
- Statement: real net interest as a share of the economy kept close to the average for the last several decades and well below the 2 percent level of the 1990s.
- Concern expressed about risks to investor and consumer confidence from repeated debt limit standoffs and possible government shutdowns.

### Monetary policy summary
- Federal Open Market Committee (FOMC) stance:
  - At its most recent meeting in June, the Committee voted to continue to hold the federal funds rate target range at 5.25–5.5 percent and to continue to reduce the Federal Reserve’s securities holdings.
- Federal Reserve objectives and risks:
  - Remain focused on dual mandate: maximum employment and stable prices.
  - Inflation target: 2 percent.
  - Risks: reducing rates too soon could reverse progress on inflation; easing too late could unduly weaken activity and employment. FOMC to decide meeting by meeting.

### Financial stability assessment
- U.S. financial system: remained stable; banking sector sound and resilient.
- Banking sector observations:
  - Banks report capital and liquidity ratios above minimum regulatory levels.
  - Liquid assets on bank balance sheets remained above their 10‑year average throughout 2023.
  - Aggregate deposits generally stable in second half of 2023 and increased in Q1 2024 to pre‑stress levels.
  - Decrease in the share of uninsured deposits in the system.
  - Most banks appear well‑positioned to absorb commercial real estate credit losses under the most likely scenario of realized losses and gradual recovery over several years.
- Supervisory priorities post‑SVB:
  - Need to improve speed, force, and agility of supervision; intensify supervision as banks grow in size and complexity; modify supervisory processes to address identified issues more quickly.
  - Administration supports banking agencies’ independent work to implement the Basel III standards and to revise liquidity regulations and supervisory processes.
- Treasury market:
  - Described as the deepest and most liquid market in the world, with about $800 billion in average daily trading volume.
  - Policy initiatives to preserve liquidity and resilience focus on data and transparency, central clearing, and dealer registration.
  - Recent regulatory and market‑structure actions: FINRA dissemination for on‑the‑run transactions, OFR rule to collect data on non‑centrally cleared bilateral repo, SEC rules to expand central clearing and require market‑makers to register as dealers, and Treasury’s launch of a regular buyback program.

### Climate, trade, and investment-related measures
- Climate and energy:
  - Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law accelerate deployment and production of clean and affordable electricity.
  - DOE estimates the two laws will cut U.S. greenhouse gas emissions by up to 41 percent below 2005 levels by 2030.
  - Bipartisan Infrastructure Law invests over $800 million in workforce development.
  - CHIPS Act invests over $11 billion in Research and Development.
  - IRA provisions include bonus incentives for meeting prevailing wage and apprenticeship criteria.
  - Emphasis on building resilient, diversified clean energy supply chains and engaging allies and partners.
- Trade posture:
  - The Executive Director’s statement disagrees with staff’s characterization of tariffs and domestic content provisions as harmful, arguing U.S. policies are tailored to narrowly scoped objectives (for example, addressing climate change).
  - The United States defends supply chain diversification and policies to respond to concerns about China’s unfair practices, with the aim of increasing trade with a variety of partners and improving long‑term resilience and growth.
- Governance and anti‑corruption:
  - Welcome of coverage in the Article IV report and encouragement that other major economies include such coverage in their surveillance.

*Source: Statement by Elizabeth Shortino, Amy Houpt Medearis, and David Wright (July 17, 2024) and related IMF staff text.*

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*Source: IMF — UNITED STATES: STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX (excerpts as provided).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1usaea2024001.pdf_